Governor gets concessions in Exelon deal

In a settlement with Gov. Martin O'Malley over the proposed buyout of Constellation Energy Group, Exelon Corp. has promised to develop significantly more natural gas, wind and solar power in Maryland, give more money to help low-income customers and provide more protections for Baltimore Gas and Electric.

O'Malley said Wednesday evening that by agreeing to sweeten its commitments to Maryland, Chicago-based Exelon has gained his support. He had opposed the $7.9 billion buyout as it was originally structured.

His office put the value of the settlement at more than $1 billion, almost double the companies' latest offer of $515 million in concessions.

Exelon spokeswoman Judith Rader confirmed Wednesday night that a settlement was reached, and said the companies are expected to make an announcement Thursday.

The deal, however, does not provide additional rate relief for BGE customers. Exelon and Constellation have pledged a $100 credit for each of BGE's 1.1 millionresidential customers. Instead of pushing for additional money for consumers immediately, O'Malley has advocated a long-term outlook by pushing for additional renewable energy development in Maryland.

Merger critics, including the Maryland Office of People's Counsel, have called on the companies to double that credit to $200 per residential customer. People's Counsel Paula Carmody declined Wednesday to comment on the settlement.

Administration officials said Wednesday that BGE customers have received $275 in rate credits over the past several years and noted that electricity prices have fallen.

"Though I opposed this merger for many months, I have joined this settlement with Exelon because I believe the company has met the extremely high bar that I demanded," O'Malley said in a statement to The Baltmore Sun. "We accomplished all of this while ensuring that BGE remains a locally managed utility protected from the risks inherent from a large holding company. The deal represents an unprecedented commitment on Exelon's part to become part of Maryland's future."

The settlement is separate from the deal's review before the Maryland Public Service Commission, which has the power to veto the proposed merger. O'Malley's support and the concessions could bolster the companies' standing before the commission, though the regulatory panel could condition its approval on additional commitments.

After holding 11 days of evidentiary hearings and three public comment sessions, and reading several hundred pages of documents, the Public Service Commission is expected to make a decision by Jan. 5. The commission does not comment on pending cases, said spokeswoman Regina Davis.

The commission must also approve the settlement, which is expected to be filed with the agency Thursday.

Merger opponent EDF, which owns nearly half of Constellation's nuclear plants, said in a statement Wednesday that it was surprised by the governor's settlement related to a transaction that "still poses significant risks to Maryland jobs and to the state's nuclear industry." EDF, which voted against the merger as Constellation's second-largest shareholder, has expressed concerns that the proposed merger would hurt local management and autonomy of its nuclear joint venture based in Maryland.

"Having invested many billions of dollars in Maryland, EDF is especially surprised that the interests of the state's nuclear industry are not included in the commitments Exelon has made to secure the Governor's support," EDF said. "EDF will continue to look to the PSC, which has sole responsibility for determining whether the merger is in the best interests of Maryland, to make a judgment on the transaction and protect Maryland's interests."

A foundation of the settlement is Exelon's commitment to develop up to 300 megawatts in energy generation in the state. Of that amount, more than half would be generated by renewable resources, such as solar power, wind farms and a plant fired by poultry manure. O'Malley had previously pushed for an even higher commitment.

The new power generation is expected to create thousands of temporary and permanent jobs in the state, including Baltimore.

One environmental group lauded Exelon's renewable energy commitments.

"I believe the governor's agreement with Exelon is historic for the people of Maryland, for a clean environment and for the fight against global warming," said Mike Tidwell, director of Chesapeake Climate Action Network, which is a party in the proposed merger's regulatory process.

Under the settlement, Exelon agreed to provide $30 million to create an offshore wind development fund, and to give another $2 million to a state public institution or university to support wind energy research and development.

The settlement also provides further protection for BGE in case Exelon runs into financial troubles such as bankruptcy.

The Public Service Commission would retain the power to order Exelon to divest its interest in BGE under certain circumstances, including bankruptcy, a nuclear accident, a major credit rating downgrade or repeated violations of commission rules.

Last month, Maryland Sens. E.J. Pipkin and Jim Rosapepe had called on state energy regulators to order the spinoff of BGE into an independent, publicly traded company as a condition of merger approval. A top Exelon executive said separating BGE would be a deal-breaker.

Other conditions in the settlement include $10 million for Maryland's Empower energy efficiency efforts, up from $4 million; $10 million for a program to help low-income electricity customers with their bills; and $50 million to support weatherization efforts of low- to moderate-income homes. Administration officials said federal stimulus money to help residents make their homes more energy-efficient is expected to dry up in the next six months or so.

Rosapepe, who has unsuccessfully pushed for re-regulating the state's electricity market, was cautious about the settlement.

"Obviously, there are some good things in it, such as money for weatherization, money for renewables," Rosapepe said. "But the big question for consumers is how much will it reduce consumer rates. And that's the question I think the Public Service Commission should ask as it evaluates this proposed settlement."

O'Malley's intervention outside the regulatory process is not unusual when it comes to major energy deals.

In 2009, he unsuccessfully sought to wrest additional concessions from Constellation when the company sought regulatory approval of a deal to sell half its nuclear business to French utility EDF. Although the behind-the-scenes settlement talks with the company fell through, state energy regulators eventually approved the nuclear joint venture with conditions.

In an op-ed article in The Sun last week, O'Malley said his administration could not support the proposed merger because Exelon had yet to offer an incentive package satisfying statutory requirements that the deal be in the public interest and benefit BGE ratepayers.

Negotiations with Exelon intensified in the last few weeks, and the settlement was finalized Tuesday, said Matthew Gallagher, O'Malley's chief of staff.

While O'Malley has made rate relief a priority in the past, green energy has become a cornerstone of his administration in recent years.

The governor is pursuing a plan for wind turbines off the Atlantic coast. And he has set ambitious green-energy goals. State law requires electricity suppliers to generate 20 percent of their power from renewable sources by 2022.

Last week, Exelon and Constellation upped their commitment to renewable energy from 25 megawatts to 55 megawatts of wind or solar energy. In addition, the companies pledged to develop 120 megawatts from natural gas plants.

The companies' previous commitments include continuing $7 million in annual charitable contributions in Maryland for a decade.

They have also pledged to build a new downtown headquarters to house the combined company's power-selling business.

Under the merger, Constellation Energy's growing retail and wholesale power-selling businesses, known as NewEnergy, would retain the Constellation brand name. Exelon's similar business in Pennsylvania would join the group in Baltimore.

On Wednesday, Exelon said that Kenneth W. Cornew, a senior vice president and president of Exelon Power Team, would become the combined company's executive vice president and chief commercial officer as well as chief executive officer of Constellation.

John Rowe made no secret of the fact that he badly wanted a signature merger to top off his career as the chief executive of Exelon Corp. How badly can be seen in the settlement he just agreed to in Exelon's bid to purchase Baltimore's Constellation Energy.

In a settlement with Gov. Martin O'Malley over the proposed buyout of Constellation Energy Group, Exelon Corp. has promised to develop significantly more natural gas, wind and solar power in Maryland, give more money to help low-income customers and provide more protections for Baltimore Gas and...

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